The most important statistics for one investor aren’t always particularly important to another. For instance, if you want to know “what’s today’s hot real estate market?” you can simply google for that statistic. However, by the time you take action, all of the best deals will be gone and what drove the market up is probably cooling off. You’re better off finding the underlying statistics that drive these markets and then finding a new and sustainable market rather than a flash in the pan hot market.
Sustained population growth is one of those statistics. There have been two major trends driving population growth. One is economic opportunity and the other is baby boomers retiring to sunshine states. These are likely to be the first to rebound as the economy reopens. Even then all things are not equal. Economic growth first drives the demand for rental properties. Apartments in particular. If the growth is urban, there is likely to be high demand for luxury apartments. In suburban areas, there won’t be as much demand for luxury as there will be for larger multi-bedroom apartments. In the sunshine states, look for senior communities with activities appealing to retirees. Stay away for temporary population spikes like the ones that happened in the North Dakota and Texas oil fields.
Economic growth needs to be sustainable. That’s the problem with oil fields. If you want in on the spikes, try leasing and then subleasing apartments so that you don’t have to invest capital and you can get out quickly. Otherwise, look at long term job growth and other economic factors like interest rates. With today’s low interest rates, people buying in economic hubs will be able to afford more. But it’s not only interest rates to keep in mind. In general, rent and mortgage payments shouldn’t be much more than 33% of people’s gross income. Above that, you’ll see more late payments and turn over. Your investments should account for all of this.
Population growth is not always the same as economic growth. Especially in the west where considerable population growth in cities is due to annexing suburbs. When a city annexes a suburb, the city population might grow by 100,000 people but not a single new person actually moved in. When you look for population growth, look for it at the municipal, county, and zip code levels.
Unemployment rates are important but are more of a lagging indicator than a forward-looking indicator. Unemployment rates tell you how many people are looking for a job. Not how many people have found work. Today’s unemployment picture is very unclear because we don’t know how many people will return to the jobs that closed shop during the virus. A better indicator is the number of jobs and the type of jobs being advertised. Advertisements for skilled jobs indicate both economic and population growth when qualified people are moving to the area.
Demographics have changed. Investors have been in a rut catering to baby boomers for so long that many are missing out on the shift in demographics. In 2017, Millennials accounted for 33% of homebuyers. By 2025, Millennials are expected to form 20 million new households in the U.S. By sheer size, baby boomers are still a demographic to track but as they age, boomers are less active in the market. Millennials are the driving force.
A digital revolution is not happening. The revolution is over. A big consequence of younger buyers is that we now live in a fully digital world. If your marketing strategies haven’t made the shift, you’re a dinosaur. This means using drone photography because aerial photographs sell 68% faster than properties with standard images. Today 93% of buyers who are 36 years old or younger use the internet for a house search before talking to an agent. It’s even a very small fraction of those over the age of 51 that still talk to an agent first. Still, 90% of home-buying Millennials, Gen X’ers, and young Boomers buy a home with the help of an agent in the end. If you don’t have a strong internet presence, you won’t be the person they call. On a side note, your “About Us” page is the third most-viewed page. Make sure it talks to your prospective clients.
Know your digital footprint. We’ve known for many years that your website must be search engine optimized (SEO). Not only for Google but also YouTube. The younger generation searches for YouTube videos almost as much as they google for the information. This is perfect for video marketing real estate. There is a ton of information available about driving SEO traffic and finding leads but mostly it comes down to consistent and current content that targets the right keywords. And today it means offering real-time and personal video tours once a buyer does call you.
These types of statistics won’t make you wealthy fast. But if you want sustainable wealth, you need to be in sustainable markets.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].